MakerDAO makes its mark as a money-making machine- At what cost?

• DSR’s TVL surpassed $1 billion as borrowers on the protocol also increased.
• Maker’s increasing narrative around RWAs could be bullish for the MKR token.

Over the last year, the crypto market has undoubtedly left many projects in undesirable financial positions. Although the last few months have been accompanied by some sort of respite, not all could boast about significant revenue and a budding ecosystem irrespective of the torrid market conditions. But such was not the case with MakerDAO [MKR].

Realistic or not, here’s MKR’s market cap in ETH terms

All hail the “rainMaker” and DAI

As a project developing technology for savings and borrowing while housing a stablecoin on the Ethereum [ETH] blockchain, Maker has shown why its bullish precedents set earlier may not be slowing down anytime soon.

One reason MakerDAO has been able to experience growth and maintain such high standards is DAI, its decentralized stablecoin. In August, MakerDAO announced that it had increased the DAI Savings Rate (DSR) to 8%.

So, it was not surprising when the Total Value Locked (TVL) of Savings DAI surpassed $1 billion. For context, Savings DAI is the yield-bearing version of the decentralized stablecoin. This system allows DAI holders to lock their assets and earn yields on them over time.

Source: Defi Llama

At press time, DSR’s TVL further increased to $1.64 billion. This implies that the 5.00% Annual Percentage Yield (APY) offered by the protocol was enough to get more DAI holders into the system.

Other roles DAI has played in Maker’s growth include its utility acting as a low remittance coin, gas payments for Ethereum, and its stability in volatile markets.

More borrowers, more revenue

Furthermore, the last 30 days have brought in a total of $10.7 million in revenue for Maker. This data was according to Token Terminal. When checked on an annual basis, the protocol’s revenue is over $137 million. 

Source: Token Terminal

This made MakerDAO the seventh-largest revenue-generation protocol at press time.

Primarily, Maker does not generate its revenue through gas like Ethereum. Instead, the interest paid by borrowers on the platform helps its revenue. Hence, the increase suggests that there has been a lot of borrowing activity on the protocol lately.

According to Defi Llama, the growth experienced has also helped Maker’s treasury. At the time of writing, MakerDAO’s treasury was $171.61 million. Its native token MKR formed 52.12% of this number while DAI’s share in this was 29.62%.

Source: Defi Llama

As a result of MakerDAO’s impressive network, MKR has also been able to put a good performance. While a lot of altcoins are dealing with downsides for a one-year performance, MKR could brag about its 71.21% increase in the last 365 days.

MKR is not left out

While there may be many reasons for the hike, MKR’s relevance in the market could be linked to its fundamental tokenomics. For the uninformed, the MKR token has two main purposes. One is for governance, and the other is acting as a recapitalization resource. 

As a governance token, MKR allows literally anyone to submit a proposal for a vote. However, not everyone is allowed to vote on changes to the protocol. Its function as a recapitalization resource is found in the fact that the token supply could expand through a debt auction. 

However, this would only be required if the system debt exceeds the surplus. Meanwhile, MakerDAO’s network growth has decreased, according to data from Santiment. Network growth, based on the on-chain analytic platform’s definition, is the number of new addresses interacting with a network.

By interaction, an increase in the network growth would mean a surge in transfer by this new cohort. On the other hand, a decrease suggests a decline in new address transactions. Therefore, Maker’s network growth implies that there has been a reduction in traction on the network in the last 30 days.

MKR’s circulation within the same period has also decreased. But unlike network growth, a decrease in this metric could be a positive signal. The circulation of a cryptocurrency measures the number of tokens used during a certain period of time.

Usually, high circulation often coincides with short-term selling pressure. Conversely, low circulation means possible stability and a potential for the asset price to increase. This was also evident in MKR’s 24.49% increase to $1,452 in the last 30 days.

Source: Santiment

Rivalry may not halt bullish tendencies

Furthermore, it is not a new development that MakerDAO has established itself as an authority in the Collateralized Debt Position (CDP) category. However, it still faces competition from emerging projects Lybra Finance and Liquity.

Besides that, other DeFi protocols including Curve Finance [CRV] and Aave [AAVE] have joined the decentralized stablecoin market. So, Maker might need to keep its eyes open as these projects could be hell-bent on grabbing some of the market share DAI has.

Irrespective of the brewing rivalry, there were still some catalysts that could put Maker on the bullish end. For instance, the introduction of the subDAOs after its Endgame finalization could put it in the spotlight again.

How much are 1,10,100 MKRs worth today?

Also, the narrative around the deployment of Real World Assets (RWAs) on the protocol could prove to be beneficial to Maker. Over the last year, RWAs, defined as a collateral type of legal entities, have grown in DeFi. 

For many market participants, projects that take this development seriously have the tendency to enjoy the fruits of a full-blown bull market.